Hi,
I'm a complete newcomer to investing but am generally a pretty numbers-savvy guy and I'm currently trying to get my head around the various accounting structures available to figure out which is best for our situation.
My partner and I have recently found a property that I expect will be marginally cash flow positive but with some risk of going negative.
The rough situation is
– IP price $350k
– rental return est $480-580pw, but basing numbers off $460 to account for possible vacancy (I'm a risk averse person)
– presumption of 20% deposit from equity of PPOR (taken from offset account)
– My income approx $100k & my partner's approx $40k
With my assumed lower-end rental return I'm hesitant to use a company to purchase the property because of the higher interest rate it would attract making it almost certain this would be negatively geared, and because of the disparity between my partner & my income a trust that would allow profit to be distributed is appealing, but on the flip side being able to distribute losses (should they occur) to me to reduce tax would be brilliant.
Looking through the dozens of related topics on the forum a few people have said that a property can be bought by an individual on behalf of a trust – would this allow me to distribute profits to my partner or any losses that occur to me? What would you do if you were starting out in this situation?
Thanks so much!!
Chris
They are not accounting structures but legal structures really. A trust is not a separate entity but a legal arrangement where a trustee owns property on behalf of beneficiaries. For tax purposes trusts are treated as separate entities so a trustee buying a property is ignored and the trust is assessed on the property. Therefore from a tax angle it doesn't matter whether the trustee is a person or a company as the tax consequences are the same. ie any losses would still be attributed to the trust.
BTW, there is no way you would want to use a company to own property.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for your comments Terryw. I think the concepts are starting to set in my head, but I'm still a bit puzzled about whether I'm likely to be better off purchasing in my name or under a trust.
I'm currently looking at a short list of properties with cash flow (after accounting for rental management, repairs, rates, etc) of between a few hundred and 2.5k. Because this is pretty small I'm guessing that depreciation and other deductions will shrink this to negative – in which case I'd assume it's better to be personal ownership rather than trust? Or am I barking up the wrong tree?
chris_bc wrote:Thanks for your comments Terryw. I think the concepts are starting to set in my head, but I'm still a bit puzzled about whether I'm likely to be better off purchasing in my name or under a trust.I'm currently looking at a short list of properties with cash flow (after accounting for rental management, repairs, rates, etc) of between a few hundred and 2.5k. Because this is pretty small I'm guessing that depreciation and other deductions will shrink this to negative – in which case I'd assume it's better to be personal ownership rather than trust? Or am I barking up the wrong tree?
What do you mean by "better"?
Taxation is only on issue and you need to consider short term as well as long term. What will things be like as rents rise?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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